December 9, 2010

 

Brazilian soy could surpass November highs on dry weather

 

 

Dry weather in Brazil's major soy areas has dialled back expectations for next year's crop and likely will push CBOT futures prices above two-year highs reached in November, according to analysts.

 

Earlier this month, the USDA lowered its forecast for the country's 2011 crop by 1% to 66.8 million tonnes, citing dry conditions stemming from a La Nina phenomenon.

 

Brazil is the world's second-largest soy producer next to the US Any weather-related crop shortfall in Brazil would intensify competition for US soy on global export markets. An extended soy rally would also boost soymeal prices, raising feed costs for beef and pork producers who already seeing thinner margins after corn rallied above US$5 a bushel.

 

In light of rising demand, next year's soy prices must increase to encourage farmers to plant more, said another analyst.

 

There are very high odds that soy futures will rise above November highs, the analyst said. "I don't think new-crop soy prices are high enough to get the additional acres we need."

 

Soy futures for January delivery traded at CME Group fell US$0.03 to $12.85 a bushel. The contract reached US$13.48 one-half on November 12. November 2011 futures, which reflect expectations for next year's US harvest, rose US$0.01 one-quarter to US$12.

 

The USDA's estimate for Brazil's soy crop, at 66.8 million tonnes, would be down 3.2% from last year's crop.

 

Some areas, including Rio Grande do Sul, one of Brazil's top soy states, received rain in late November. Still, "yields are expected to be lower than last year given La Nina weather patterns," the USDA said. La Nina is expected to continue to bring irregular precipitation throughout the growing season and result in low national yields, it said.

 

Much of Brazil's most fertile land was planted to cotton this year rather than soy, the USDA said. Additionally, the soy crop was planted later than normal, which "will limit Brazil's role in international markets until mid-February," it said. "As a result, the US will benefit longer as the main supplier to international markets."

 

US soy exports surged in recent years in large part because China bought more. In the 2010-11 marketing year, China's soy imports are expected to jump 13%, to 57 million tonnes, according to USDA estimates.

 

As the 2011 U.S. spring planting season approaches, the so-called "battle for acres" between corn, soy, and other crops is sure to heat up, analysts said. US farmers probably need to plant an additional two million acres of soy next year to keep pace with demand, another analyst said.

 

"That's going to be hard to do," he said. New-crop soy futures, he said, may climb to near US$14 a bushel in coming months.